Introduction:

The cryptocurrency market has been on a wild ride this January, with Bitcoin experiencing its best month since 2021. However, all eyes are now on the Federal Reserve’s monetary policy decision, which could have a major impact on the future of digital assets.

Bitcoin’s Impressive Start to the Year:

Despite experiencing a 1.5% dip in the past 24 hours, Bitcoin has still had its best January since 2013. The largest digital asset saw a 40% surge in value, marking the best start to the year since 2013 when its value was just a fraction of what it is now.

Correlation with Stocks:

Digital assets have become increasingly correlated with stocks in the past year, with Bitcoin swinging in step with the Dow Jones Industrial Average and S&P 500. This is due to a macro backdrop of high inflation and rising interest rates.

The Fed’s Monetary Policy Decision:

The Federal Reserve’s interest rate decision is a key catalyst for the crypto and stock markets alike. The markets expect the Fed to raise rates by one-quarter of a percentage point, which would increase borrowing costs but slow down the pace of tightening financial conditions. The Fed’s policy has been a headwind for equities and digital assets in the past year, as higher rates dampen demand for higher-risk assets.

Risks for Cryptocurrencies:

The Fed’s decision represents a risk for cryptocurrencies, particularly after such a strong start to the year. It will take some very positive news, such as a dovish pivot in policy, to keep the good times rolling for Bitcoin. If investors are not pleased with the Fed’s decision, digital assets are at risk of retracing.

Technical Analysis:

According to Katie Stockton, managing partner at technical research group Fairlead Strategies, Bitcoin has confirmed a short-term counter-trend sell signal. This supports a two-week pullback following a strong relief rally, returning to a bearish short-term bias. Bitcoin is expected to find initial support near its 200-day moving average around $19,700 and secondary support above two-year lows at $15,600. Stockton added that resistance of $25,200 is not likely relevant near-term and a long-term bearish bias remains appropriate.

Beyond Bitcoin:

Ether, the second-largest cryptocurrency, dropped 1% to below $1,575. Smaller cryptocurrencies or altcoins were also weak, with Cardano down 2% and Polygon 3% lower. However, memecoins, such as Dogecoin, bucked the trend, jumping 7%.

Conclusion:

The future of the cryptocurrency market hangs in the balance as the Federal Reserve approaches its monetary policy decision. Although Bitcoin has had a strong start to the year, the decision could have a major impact on the future of digital assets. It will take some very positive news to keep the good times rolling for Bitcoin, as the risks for cryptocurrencies are high. As always, it is important for investors to keep a close eye on the market and make informed decisions.